Cost Reductions to Boost Trina Solar, Nomura Says

By Ben Levisohn

Nomura’s strategists met with Trina Solar’s (TSL) management at the Clean & Green Corporate Day in Hong Kong yesterday and got some insights into what’s driving the market now.

dapd

China is focused on the rooftop segment, Nomura’s Nitin Kumar writes, with many of the new policies encouraging Chinese to install panels on top of buildings and homes–and that will drive much of the demand in the short-term. Trina expects shipments to grown by 30% in 2013.

Nomura has Trina rated a buy largely because the company keeps its costs low–a necessary attribute given the fact that panels sell for less in China than elsewhere in the world. Kumar expects continued cost reductions will boost Trina’s margins to 15% to 20% in 2013 and 2014, up from about 5% in 2012.

China’s solar stocks have been consolidating after their recent run. Trina has gained 1.3% today, while JA Solar Holdings Co. (JASO) has gained0.9%, Yingli Green Energy (YGE) has gained 1.7% and LDK Solar (LDK) has gained 1.1%. Suntech Power Holdings (STP) has gained 1.15%. All, however, appear to be staying within their recent ranges.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There are 3 comments

JANUARY 24, 2013 12:11 P.M.

ChinaSolarLover wrote:

Unsubsidised solar flags revolution in energy markets

By Giles Parkinson on 23 January 2013

The revolution in energy markets caused by the growing impact of rooftop solar PV is about to take a dramatic leap in scale.

According to analysts from the global investment banking giant UBS, the arrival of socket parity – where the cost of installing solar is cheaper than grid-sourced supplies – is about to cause a boom in un-subsidised solar installation in Europe, and the energy market may never be quite the same again.

Such forecasts have long been the province of environmentalists, climate activists, university researchers, and the occasional industry leader, such as David Crane, the head of NRG, the largest generator of electricity in the US.

Now, the team from UBS, writing in response to plunging power prices in Europe, has issued a stunning report entitled “The unsubsidised solar revolution” – suggesting that investing in solar will become a “no brainer” for households in several European countries, and will have profound implications for the incumbent energy industry.

“Solar has turned from a heavily-subsidised marginal technology into a mainstream source of power generation,” the UBS analysts write. ” “Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills – without any subsidies.”

Here’s a graph to illustrate what they mean. It shows the light blue line at the top, which indicates where grid-based electricity costs are heading. The dark blue line indicates the cost of solar PV – it’s now at an inflection point in southern Germany and will get cheaper. But PV with battery storage, while more expensive now, will cross over in 2014 and ultimately deliver the biggest savings.

UBS says this means utility customers will effectively become utility competitors. It estimates there could be 80GW of unsubsidised solar installed in Germany alone. This is on top of the 32GW already installed through subsidised installation, and the 52GW cap put on subsidised installations.

“We are at the beginning of a new era in power markets,” the UBS analysts write. ”Purely based on economics, we believe almost every family home and every commercial rooftop in Germany, Italy and Spain should be equipped with a solar system by the end of this decade.”

It says up to 18% of electricity demand could be replaced by self-produced solar power in these markets, at the expense of centralised generation. Even as soon as 2020, up to 43GW of unsubsidised solar could be installed in Germany, Italy and Spain, replacing up to 9 per cent of electricity demand. This is on top of reduction in demand caused by energy efficiency measures and weak GDP growth.

The impact on utilities will be profound, and will be made worse by the emergence of cheap battery storage, which would allow households – and businesses – to consumer more of their own energy, and effectively remove the morning and evening peak in pricing, as well as the midday peaks, as we revealed in a dramatic graph in our article last May of Why generators are terrified of solar. Without any peaks, the profit margin of generators is removed. UBS calculates the EBITDA profit pool of the conventional generators will shrink by around 50 per cent.

“Households will be able to use the electricity stored in batteries during the evening, which means pressure on spot prices during the evening hours. So far, solar has only been shaving the midday peak. Even worse, batteries installed in family homes or commercial buildings could also reduce the morning peak as they could be charged with low-cost electricity from the grid during night hours,” UBS notes.

It says residential customers, on average, could provide 29 per cent of their own energy needs by 2020. Individually, a house with a 3kWh battery and a 4kW PV system could to lower its electricity consumed from the grid by 50-60 per cent. Commercial businesses could cut even greater amounts, and even a car manufacturing giant like BMW could produce 490MWh of solar electricity per year using its own land, or 29 per cent of the group-wide electricity demand.

The impact on the generation industry will be severe. Here’s what UBS estimates the combination of solar PV and battery storage will do to the tariff curve by 2020 – the full impact of their predictions will result in an even greater flattening of the curve.

JANUARY 24, 2013 1:58 P.M.

gebby wrote:

There is no longer a good reason to bet against solar. NFLX which earned only .17 for the Q trades at 135.00. 7 years ago NFLX earned the same amount and was sold short to 10. The solar manufacturers will own the electricity market in 10 years. Where to invest? In Oil or Gas? Think again.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.